Market Cycles Made Simple: When to Buy, Hold, and Sell in Multifamily

You don’t control the market—but you do control when you buy, how you hold, and when you sell. Understanding market cycles turns guesswork into a plan.

The 4 phases (in plain English)

1. Recovery

   • Vacancies high, rents flat, lenders cautious.

   • Opportunity: Buy discounted assets. Light renovation + better management = easy wins.

2. Expansion

   • Jobs growing, rents rising, cap rates compressing.

   • Opportunity: Buy early, execute value-add, refinance at better terms.

3. Hyper-Supply

   • New construction outpaces demand; concessions creep in.

   • Risk: Overpaying. Strategy: Be selective, underwrite conservatively.

4. Recession

   • Rents and values soften, distressed sales appear.

   • Opportunity: Strongest buyers acquire at discounts; weaker owners sell.

How to tell where you are (simple indicators)

• Employment growth: Uptrend = expansion; downtrend = late cycle or recession.

• New supply vs absorption: If completions > new leases, hyper-supply risk.

• Cap rate movement: Broad compression = late expansion; sharp rise = recession.

• Concessions trend: Free rent/bonuses rising? Demand softening.

What to do in each phase

• Recovery: Buy mismanaged assets. Focus on operations and light capex.

• Expansion: Execute value-add, lock debt, consider partial exits/refis.

• Hyper-Supply: Tighten underwriting. Avoid heavy lease-up risk without deep discounts.

• Recession: Keep liquidity. Target forced sellers and loan maturities.

A simple playbook for risk control

• Exit cap buffer: +50–100 bps from entry.

• Debt match: Fixed or capped floating with realistic DSCR.

• Reserves: Fund day-1 and monthly replenishment.

• Sensitivity tables: Vary rents (±1–2%), vacancy (+1–2%), exit cap (+50–150 bps).

Example: the cost of ignoring cycles

Buying late in expansion with aggressive assumptions:

• Underwrite 3% rent growth annually, but actual turns flat for two years.

• Exit cap expands by 100 bps.

• Result: NOI misses + lower sale multiple = double hit to returns.

Quick checklist

• Read quarterly market reports (jobs, supply pipeline, rent trends)

• Track concessions in your submarket

• Underwrite with downside cases (recession scenario)

• Keep dry powder for opportunistic buys

Bottom line: You don’t need to predict the future. You just need a plan for each phase—and the discipline to follow it.